Tax Breaks For Energy Companies Here Deserve Scrutiny

David Blatt, director of the Oklahoma Policy Institute, argued this week that the state should restore price floors on some energy company tax exemptions.

Under current regulations, state tax breaks for horizontal and deep-drilled wells are granted no matter how much the cost is of oil and gas. Exemptions for more standard drilled wells, according to Blatt, have a price floor of “$30 per barrel for oil and $5 per MCF for natural gas . . .”

Blatt points out companies claimed $83.4 in rebates for horizontally drilled wells in fiscal year 2010. He writes:

When Oklahoma gives tax breaks no matter what the price of oil and gas is — as it does with horizontal and deep well drilling (but not other forms of production) — it invites the suspicion that we are not incentivizing production so much as subsidizing the normal cost of doing business for a powerful and well-connected industry.

He also cites a study that shows tax incentives rank last in variables that companies consider before they drill.

Energy companies are going to drill here no matter what the tax incentives just as long as they can make money. Does anyone doubt that? Obviously, the price of gas and oil fluctuates, and the federal government has a duty to ensure an adequate fuel supply for security reasons and the state government has an obligation to enhance basic commerce here. But the tax breaks discussed by Blatt become corporate welfare when energy companies make healthy profits on specialized drilled wells anyway.

Blatt argues:

As Oklahoma grapples with its prolonged crisis of meeting growing needs with a shortage of revenue, the need to scrutinize all forms of public spending – including spending embedded in the tax code in the form of credits, deductions, rebates and exemptions –assumes renewed urgency. While income tax credits have drawn considerable attention of late from the Attorney General, legislators and others, the state’s system of tax breaks for oil and gas production has received only minimal scrutiny – even as their cost has risen to over $100 million annually.

That energy companies here get a sweet deal is nothing new. Their apologists will make the argument they contribute heavily to the economy and government revenues and that specialized drilling is expensive. This is true enough, but the argument lacks a larger context and lacks a concern for the state’s long-term future.

First, there has been a huge shift of wealth in this country in the last three decades from the large middle class, which faces stagnant wages and expensive health care costs, to a relatively small number of rich people. The wealthiest group obviously would include top oil and gas executives and those who own large chunks of stock in energy companies. What’s the end game as the trend continues? Corporate welfare only creates a powerful American oligarchy that ends up controlling government at all levels through campaign contributions and lobbying influence.

Second, what happens when the last drop of profitable oil or the last cubic foot of gas is extracted from Oklahoma’s ground? This is years down the road, but it will happen. What will Oklahoma be like after years of neglecting its infrastructure, educational systems and health care services so energy companies, other corporations and its wealthiest citizens could get unneeded tax breaks? What happens, then, when the major energy companies are gone and the state is not positioned to handle their absence?

As I wrote on Okie Funk in 2008:

Once the last bit of oil and natural gas is sucked from the soil here, the energy companies will leave and never come back. They are a blip on the state’s and country’s history. They have prevented the state from prospering by using political manipulation to protect their narrow interests, and that is what the historical record will show.

Leaving aside larger social and political arguments, Blatt’s well-researched proposal at its core is a balanced, pragmatic approach that will still allow tax breaks for energy companies. It deserves immediate consideration at the state Capitol because of the budget crisis.